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China Readings for March 13th

"Sinocism is the Presidential Daily Brief for China hands"- Evan Osnos, New Yorker Correspondent and National Book Award Winner

Frank Talk – Appreciating China to its Fullest– Deutsche Bank strategists say with “very healthy” GDP growth and moderate inflation, the “macro fundamentals should easily justify a further rerating of the forward P/E to 10.5 times” by the end of 2012. This valuation suggests that the MSCI China could increase 15 percent from its March 8 level, says Deutsche Bank.For long-term investors learning to appreciate the finer points of the country, we believe China is somewhat like fine wine; it only gets better with age.

China’s past needs to be rewritten – FT.com – How would a Chinese superpower treat the rest of the world? Anyone wanting to peer into the future, could start by looking back at the past – or, at least, at the official version of China’s past. The message is not reassuring. China’s schoolchildren are being taught a version of history that is strongly nationalist. The official narrative is that their country was once ruthlessly exploited by rapacious foreigners. Only a strong China can correct these historic wrongs.

Youku/Tudou: marriage of convenience – FT.com – The trouble is that the logic of the merger requires a large overlap in content that does not exist. Apart from some popular programmes, the content on each site is still different. That will make it harder to wring synergies from the Rmb410m in content costs at the merged company. And even though they are forecast to eke out a net profit in 2013, losses for 2011 of Rmb680m at the merged company are four times greater than Youku’s loss that year. Revenue growth is also set to slow: online video advertising is expected to grow an average 50 per cent over the next three years, three times slower than over the last three. As pure online video sites, they face competition from state media and web portals such as Sohu and Baidu, which are strengthening their video services.
Tudou’s shares rose 150 per cent on Monday: talk about relief. It does not, alas, reflect any optimism that competing in China’s online market is going to get any easier.

In 1976, NSA Was Tasked to Help Secure Private Communications | Secrecy News – As long ago as the Gerald Ford Administration, the National Security Agency was directed to help secure non-governmental communications networks against intrusion and interception by foreign — or domestic — entities, according to a recently declassified presidential directive…“The President is concerned about possible damage to the national security and the economy from continuing Soviet intercept of critical non-government communications, including government defense contractors and certain other key institutions in the private sector,” wrote National Security Advisor Gen. Brent Scowcroft in National Security Decision Memorandum (NSDM) 338 of September 1, 1976.

Washington’s high-powered terrorist supporters – Glenn Greenwald – Salon.com– We now have an extraordinary situation that reveals the impunity with which political elites commit the most egregious crimes, as well as the special privileges to which they explicitly believe they — and they alone — are entitled. That a large bipartisan cast of Washington officials got caught being paid substantial sums of money by an Iranian dissident group that is legally designated by the U.S. Government as a Terrorist organization, and then meeting with and advocating on behalf of that Terrorist group, is very significant for several reasons. New developments over the last week make it all the more telling. Just behold the truly amazing set of facts that have arisen:In June, 2010, the U.S. Supreme Court issued its 6-3 ruling in the case of Holder v. Humanitarian Law. In that case, the Court upheld the Obama DOJ’s very broad interpretation of the statute that criminalizes the providing of “material support” to groups formally designated by the State Department as Terrorist organizations. The five-judge conservative bloc (along with Justice Stevens) held that pure political speech could be permissibly criminalized as “material support for Terrorism” consistent with the First Amendment if the “advocacy [is] performed in coordination with, or at the direction of, a foreign terrorist organization” (emphasis added). In other words, pure political advocacy in support of a designated Terrorist group could be prosecuted as a felony — punishable with 15 years in prison — if the advocacy is coordinated with that group.

Is the Fed Going to Go Easy on the Banks to Help Obama? « naked capitalism– As we’ve discussed repeatedly, the four biggest banks have residential mortgage second liens that based on the most recent data are valued at $369 billion. My understanding is that they are marked at between 80% and 90% of face value (JP Morgan may have written them down a bit more) when second lien paper is trading in the secondary market at 30 cents on the dollar. If you assume an average of 85% of face and it needs to be 30%, that $369 billion is really $130 billion, meaning you’d have a nearly $240 billion hit. And that’s just a realistic current mark, not taking into consideration the extra damage occurring in the new stress scenario.In other words, if any of the big four banks are allowed to pay dividends or buy back stock this year, you should regard it as a bit of electioneering by the Fed. The banks have a long way to go before they are healthy, and the central bank knows even as it pretend not to know that for public relations purposes.

China High-Speed Rail Section Collapses After Rains, Renewing Safety Fears – Bloomberg – A section of an unopened high-speed railway collapsed in central China’s Hubei province following heavy rains, renewing safety concerns prompted by a fatal crash last year.
Hundreds of workers have been sent to make repairs to the 300-meter (984-foot) roadbed after the March 9 failure in Qianjiang city, the official Xinhua News Agency said today, citing local authorities. The stretch, which had undergone test runs, is part of a line due to open in May.

Trapped in China, U.S. engineer’s life in limbo – CBS News– Dr. Zhicheng Hu, who was born in China, was accused of stealing trade secrets in 2008. CBS News correspondent Celia Hatton sat down with Hu for one of his first television interviews.When President Obama met Chinese Vice President Xi Jinping last month, he asked Xi to help settle the murky legal case of one American who is trapped in China.

Auto engineer Dr. Zhicheng Hu is a naturalized American citizen living in Los Angeles. In 2009, on business in China to sell his patented car emissions technology, Hu was accused by his former Chinese business partner of stealing commercial secrets. Authorities ordered Hu straight to prison in Tianjin, eastern China.

Amazon.com: Why Nations Fail: The Origins of Power, Prosperity, and Poverty eBook: Daron Acemoglu, James Robinson: Kindle Store– Daron Acemoglu and James Robinson conclusively show that it is man-made political and economic institutions that underlie economic success (or lack of it). Korea, to take just one of their fascinating examples, is a remarkably homogeneous nation, yet the people of North Korea are among the poorest on earth while their brothers and sisters in South Korea are among the richest. The south forged a society that created incentives, rewarded innovation, and allowed everyone to participate in economic opportunities. The economic success thus spurred was sustained because the government became accountable and responsive to citizens and the great mass of people. Sadly, the people of the north have endured decades of famine, political repression, and very different economic institutions—with no end in sight. The differences between the Koreas is due to the politics that created these completely different institutional trajectories.Based on fifteen years of original research Acemoglu and Robinson marshall extraordinary historical evidence from the Roman Empire, the Mayan city-states, medieval Venice, the Soviet Union, Latin America, England, Europe, the United States, and Africa to build a new theory of political economy with great relevance for the big questions of today, including:

– China has built an authoritarian growth machine. Will it continue to grow at such high speed and overwhelm the West?
– Are America’s best days behind it? Are we moving from a virtuous circle in which efforts by elites to aggrandize power are resisted to a vicious one that enriches and empowers a small minority?
– What is the most effective way to help move billions of people from the rut of poverty to prosperity? More
philanthropy from the wealthy nations of the West? Or learning the hard-won lessons of Acemoglu and Robinson’s breakthrough ideas on the interplay between inclusive political and economic institutions?

TheLancet.com – China
Themed issue, published March 2, 2012Executive summary
China’s rapid economic growth over the past two decades has brought many benefits and pulled hundreds of millions out of poverty, but the adverse health consequences of urbanisation and increasing affluence have put additional pressure on the country’s overstrained health services. In 2008, The Lancet produced a Series on health system reform in China. The status of China’s health-care system was described as being in disarray, with medical services being too difficult to access, too expensive, and too variable in quality. China’s 3 year, RMB 850 billion (US$125 billion) reform plan, launched in 2009, marked the first phase towards achieving comprehensive universal health coverage by 2020.

Important advances have been made in achieving equal access to services and insurance coverage across and within regions. However, these increases have not been accompanied by reductions in health expenses as a share of total household expenditure. The Lancet looks at how China has moved closer to its goal of universal, equitable, and sustainable health care, and reviews the challenges that still lie ahead and adjustments needed for successful reform.

U.S. exports to China boom, despite trade tensions – The Washington Post– While the U.S. trade deficit with China continues to soar, a surge in U.S. exports is emerging as a bright spot in the often-troubled trade ties between the world’s largest economy and its largest foreign creditor.With a richer China showing a growing appetite for U.S. products, the flow includes an increasing volume of American soybeans, cars, airplanes and medicine, and even garbage that can be mined for copper and aluminium. Overall, U.S. exports to China are up nearly 50 percent in value since 2008.

Information Dissemination: Sunday Book Review: Chinese Aerospace Power – Given that the book is the product of a Naval War College colloquium and that it includes the work of many individuals close to the development of USN doctrine and strategy, it also gives good indication of how the United States views the prospect of war against China. It bears note that the book is relevant whether or not we evaluate a war between China and the United States as likely; the technologies, doctrines, and procurement priorities outlined will guide US and Chinese policy for at least a generation, and calculations regarding the likelihood and likely course of war will guide how the two nations related to one another diplomatically. For those with even more interest in the subject, here’s a talk on the book by Andrew Erickson: